The Cash Flow Blog

According to this CNNMoney.com article, small business lending has all but dried-up and gone away.  Replacing it is good ole’ credit cards — with up to 30% interest on repayment.

Here’s the money quote (no puns intended):

Brooks applied for two business loans with Chase, first in 2007 and then again in 2008. Both applications were denied. While he had always had credit cards, Brooks never had to depend on them before: “We just never really used them — they were just there.” But toward the end of 2008, Brooks started paying bills and suppliers with his cards.

Now, he’s hit the limits on nearly a dozen cards. Brooks isn’t sure where to turn to next to keep his business running.

Criminal.

If a business can’t get a loan, why is it so easy to credit cards instead?   We know the answer, but it doesn’t change the question.

Regarding the quote above, maybe Brooks’ business shouldn’t continue operations.  Maybe the crime is credit cards somehow allowed it to exist beyond it’s time.  The weak should die?

But it’s hard to tell.  We don’t know enough to have a good opinion on the operations of Brooks’ business.  Judgment on his business isn’t the point I want to raise.

The point of the CNNMoney.com article that caught my attention is banks cutting their volume of small business loans, while increasing their credit card programs to small businesses.  Small businesses are being forced to increase their use of credit cards because that’s increasingly the only form of credit they can access.  That’s the criminal part.

A rhetorical question:  With stimulus and bail-out money being thrown around everywhere, why isn’t it funneling through  banks to small businesses in the form of small business loans?

It’s a mind-numbing and highly frustrating formula:  Limit small business loans by increasing lending requirements in an effort to reduce the portfolio of risky loans, then increase access to credit cards to fund small business,  while increasing credit card rates to protect the issuer from losses due to maxed out cards and rising rates of default.

This is insane.

Agree or disagree?